How local is local? Evidence from bank competition and corporate innovation in U.S.

This paper aims to fill in a research gap in the effects of bank competition on corporate innovation. In addition to the evidence on the favorable effects of bank competition on corporate innovation, we show novel evidence on the substitution effects of bank competition in a wider region and neighbor-state to local bank competition in financing corporate innovation activities. In banking market, we show ‘how local is local’ depends on the operating scope and information transparency of firms. Local banks have an information advantage over distant banks in financing local businesses and informationally opaque corporate innovation activities

Cost of capital and public loan guarantees to small firms

In this paper, we study the determinants of the spread charged by banks under a UK policy intervention scheme, aimed at supporting access to the credit market for small firms through guarantee backed loans. We exploit a unique dataset containing data on 29,266 guarantee backed loans under the UK SFLG scheme over the period 2000 to 2005. Results suggest that lower spreads are offered for loans of larger amounts and higher durations, for service firms, for larger firms, and for those located in the most advanced regions. Higher spreads are applied to high-tech manufacturing firms and to loans issued for working capital purposes. We also find that the presence of other extant debt is associated with a relatively higher spread and that this effect is especially significant for the subset of firms that have reached a maximum debt capacity based on collateralized assets. Further, we also find that the higher the incidence of the publicly guaranteed debt over the total amount of outstanding loans, the lower, on average, the spread. However, an increase in the guaranteed coverage leads to a contraction in the spread only for loans aimed at covering working capital needs rather than investments.N/